NCLAT Upholds Validity of Going Concern Sale Under Amended Regulation 32A(4) and Affirms Clean Slate Protection for Successful Bidder

The NCLAT upheld the validity of the sale of the Corporate Debtor as a going concern conducted under the amended Regulation 32A(4) and affirmed that the successful bidder is entitled to a clean slate protection, free from past liabilities.

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member) reviewed a set of two appeals and connected interlocutory applications and observed that a liquidation sale of a corporate debtor as a going concern conducted in the first auction attempt after the 16.09.2022 amendment to Regulation 32A(4) of the IBBI (Liquidation Process) Regulations is valid, and the “clean slate” principle applies, thereby extinguishing pre-sale liabilities, including tax dues, against the successful bidder. The NCLT erred in applying the unamended regulation and making adverse observations against the liquidator despite full compliance with the amended legal framework.

In this case, the National Company Law Appellate Tribunal (NCLAT) adjudicated two appeals arising from a common order dated 04.07.2024 passed by the NCLT, Ahmedabad Bench, in the liquidation proceedings of M/s Anwesha Engineering & Projects Ltd. The first appeal was filed by the Liquidator challenging adverse observations made against him in the impugned order, and the second appeal was filed by the Successful Bidder aggrieved by the denial of certain waivers and concessions sought in I.A. No. 1479 of 2023.

The Corporate Insolvency Resolution Process (CIRP) was initiated on 25.01.2021, and after multiple failed resolution attempts, the Committee of Creditors (CoC), with 100% voting, resolved for liquidation and sale of the Corporate Debtor (CD) as a going concern under Regulation 32(e) of the IBBI (Liquidation Process) Regulations, 2016. At the relevant time, Regulation 32A(4) required such a sale to be completed within 90 days. However, an amendment effective from 16.09.2022 removed this 90-day limit and allowed such sales in the first auction attempt.

While the Liquidator initially filed I.A. No. 950 of 2023 seeking condonation of a 131-day delay in concluding the sale, a purshis was later filed before the NCLT on 08.04.2024 confirming compliance with the amended Regulation. The CD was sold as a going concern in the first auction attempt on 28.08.2023, the full bid amount of ₹42.85 crore was paid by the Successful Bidder, and the sale proceeds were distributed in accordance with Section 53 of the Code.

The NCLAT found that the NCLT had erred in relying on the pre-amendment version of Regulation 32A(4) and ignoring the purshis that clearly outlined compliance with the amended legal position. The Appellate Tribunal also emphasized that the “clean slate” principle applied to such sales, and past liabilities, including the TDS demand raised by the Income Tax Department, could not be foisted upon the Successful Bidder, as laid down in previous precedents such as Ghanashyam Mishra and Sons private Limited Through the Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through the Director and Others, REEDLAW 2021 SC 04534, Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505, and Shiv Shakti Inter Globe Exports.

Consequently, the NCLAT allowed both appeals, set aside the impugned order, and held that there was no procedural lapse by the Liquidator. It ruled that the sale was valid under the amended Regulation and that the Successful Bidder was entitled to protection from pre-sale liabilities.

Mr. Naveen Pahwa, Sr. Advocate with Mr. Rahul Gaikwad, Ms. Stuti Vatsa and Mr. Govind, Advocates represented the Appellant.

Mr. Abhijeet Sinha, Sr. Advocate, with Mr. Karan Valecha, Advocate, appeared for the Respondent No. 1.

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